Last updated by BM on March 21, 2022
“The goal in any sport is to finish with the best score, but it would be ridiculous to spend the whole game staring at the scoreboard. The only way to actually win is to get better each day. In the words of three-time Super Bowl winner Bill Walsh, “The score takes care of itself.” The same is true for other areas of life. If you want better results, then forget about setting goals. Focus on your system instead.” James Clear, Atomic Habits
Each week we report on the components of our system (quality, valuation, dividend growth) and are less concerned about the score (capital growth). We know that our quality dividend growers purchased at a sensible price will eventually produce market-beating returns.
With full 2021 and Q4 earnings now behind us, we will wait for the market to give us opportunities. Our recent purchases (FNV, MG) in the Magic Pants Wealth-Builder (CDN) Portfolio, show us that patience, even in volatile markets can pay off when you focus on your system.
Performance of ‘The List’
‘The List’ was up slightly this week with a 2.0% YTD price return (capital) with dividend growth stabilizing. An average increase of 9.1% in dividends (income) so far in fiscal 2022.
The best performers last week on ‘The List’ were TFI International (TFII-T) up 14.2%; Alimentation Couche-Tard Inc. (ATD-T) up 8.7%; and Magna International (MGA-N) up 8.2%.
Bell Canada (BCE-T) was the worst performer this week, down -3.4%.
One company on ‘The List’ announced an earnings report for their Q3 2022 earnings season.
Recent News
We had some big news from Loblaws (L-T) this week.
Loblaws (L-T)
“Lifemark is the largest single provider of physiotherapy and rehabilitation services in Canada and also provides an array of other healthcare services including massage therapy, occupational therapy, chiropractic and mental health services, seeing over 3M patients annually,” Analyst Patricia Baker said in a note to clients.
“The acquisition of Lifemark extends Loblaw’s push in healthcare services which has seen the company take a stake in telemedicine firm Maple in 2020 and acquire QHR, an electronic medical records company in 2016,” the analyst said.
With this acquisition, you are continuing to see the evolution of Loblaws away from just being a grocer and real estate company. Health and wellness have much more growth potential than exists in selling groceries, according to an article in the Globe & Mail this week detailing Loblaws’ transition over the past few years.
“It’s no longer the great grandfather’s baking company, but investors have been well-rewarded by his heir’s strategy.” Globe & Mail, March 14, 2022
One of the reasons we added Loblaws (L-T) to ‘The List’ this year was because we saw dividend growth accelerating, which is a requirement for lower yielding portfolio candidates. With Loblaws transformation ongoing, we will be interested to see if the recent rate of increases continues.
Dividend Increases
There were no dividend increases from companies on ‘The List’ this past week.
For those of you who still don’t believe quality dividend growers increase their dividends, like clockwork every year, here is a summary of nineteen dividend increases (70% of ‘The List’) announced in the first quarter of 2022:
ATD-T from .088 to .11 up 25.7%
RY-T from 1.08 to 1.20 up 11.1%
TD-T from .79 to .89 up 12.7%
ENGH-T from .16 to .185 up 15.6%
CNR-T from .615 to .733 up 19.1%
MRU-T from .25 to .275 up 10.0%
BIP-N from .51 to .54 up 5.9%
BCE-T from .875 to .92 up 5.1%
IFC-T from .91 to 1.0 up 9.9%
TIH-T from .35 to .39 up 11.4%
T-T from .316 to .327 up 3.5%
ENB-T from .835 to .86 up 3.0%
MGA-N from .43 to .45 up 4.7%
TRP-T from .87 to .90 up 3.5%
CU-T from .44 to .444 up 1.0%
STN-T from .165 to .18 up 9.1%
CCL-B-T from .21 to .24 up 14.3%
FNV-N from .30 to .32 up 6.7%
SJ-T from .18 to .20 up 11.1%
Earnings Releases
We had one earnings report from companies on ‘The List’ this past week. Alimentation Couche-Tard Inc. (ATD-T) reported impressive earnings.
Alimentation Couche-Tard Inc. (ATD-T)
“Two years after the start of the pandemic and during a quarter where the Omicron variant surged across our network, I am proud to announce that we had good results during the third quarter in both convenience and fuel. Same store merchandise sales were particularly strong in Europe as well as in the U.S. with our freshly prepared food programs and packaged beverages among the main drivers of growth,” chief executive Brian Hannasch said in a release.
Highlights
- Net earnings were $746.4 million, or $0.70 per diluted share for the third quarter of fiscal 2022 compared with $607.5 million, or $0.55 per diluted share for the third quarter of fiscal 2021. Adjusted net earnings were approximately $746.0 million compared with $622.0 million for the third quarter of fiscal 2021. Adjusted diluted net earnings per share were $0.70, representing an increase of 25.0% from $0.56 for the corresponding quarter of last year.
- Total merchandise and service revenues of $4.8 billion, an increase of 5.8%. Same-store merchandise revenues increased 3.7% in the United States, 7.2% in Europe and other regions, and decreased 0.8% in Canada. On a 2-year basis, same-store merchandise revenues increased at a compound annual growth rate of 3.4% in the United States, 5.0% in Europe, and 2.1% in Canada.
- Merchandise and service gross margin increased 1.0% in the United States to 33.6%, 0.2% in Canada to 31.6%, and decreased 0.7% in Europe and other regions to 37.8%, which was impacted by the integration of Circle K Hong Kong.
- Same-store road transportation fuel volume increased 3.2% in the United States, 3.2% in Europe and other regions, and 7.2% in Canada. On a 2-year basis, same-store road transportation fuel volume decreased at a compound annual rate of 6.8% in the United States, 3.4% in Europe, and 7.4% in Canada, still impacted by work from home trends and resurgence of COVID-19 cases toward the end of the quarter.
- Road transportation fuel gross margin of 39.63¢ per gallon in the United States, an increase of 8.87¢ per gallon, and CA 11.78¢ per liter in Canada, an increase of CA 1.45¢ per liter. In Europe and other regions, it decreased by US 0.53¢ per liter to US 10.83¢ per liter. Fuel margins remained healthy throughout our network, due to favorable market conditions and the continued work on the optimization of our supply chain.
- On a 2-year basis, excluding the costs of employee retention measures implemented, which totaled approximately $28.0 million, normalized expenses increased at a compound annual growth rate of 3.7%, slightly below inflation level.
- Under its share repurchase program, the Corporation repurchased shares for an amount of $509.7 million during the quarter, and an amount of $230.7 million subsequent to the end of the quarter, reaching a total of $1.3 billion under the current program. Subsequent to the end of the quarter, the Toronto Stock Exchange approved the amendment of our current share repurchase program to increase the maximum number of shares that may be repurchased.
- Subsequent to the end of the quarter, and following the escalation of the conflict in Ukraine, the Corporation announced that it is suspending the operations of its 38 company-operated stores in Russia and is implementing plans to take care of its employees in a responsible and safe manner.
ATD-T was one of the companies that was adversely impacted by the pandemic. Fuel sales are now on the increase which should help margins and earnings when people start to travel more and return to the office. ATD-T depends on the morning commute as customers stop for gas and visit their stores. Management is one of the best we have seen for acquiring assets and integrating them efficiently. This company came close to our sensible price range of 6.5% EPS yield in February and early March, so we are monitoring closely.
It seems that management agreed that shares were in a ‘sensible price’ range, buying back over 500 million dollars’ worth of shares during the last quarter.
Below is a snapshot of ‘The List’ from last Friday’s close. For a sortable version of ‘The List’ please click on The List menu item.
‘The List’ is not meant to be a template for investors to copy exactly. Rather, its purpose is to provide investment ideas and a real-time illustration of dividend growth investing in action. It is not a ‘Buy List’ nor does it reflect the composition or returns of our Magic Pants Wealth-Builder CDN Portfolio. It is only a starting point for our analysis and discussion.
The List (2022)
Last updated by BM on March 18, 2022
*Note: The following graph is wide, you can scroll to the right on your device to see more of the data.
| SYMBOL | COMPANY | YLD | PRICE | YTD % | DIV | YTD % | STREAK |
|---|---|---|---|---|---|---|---|
| AQN-N | Algonquin Power & Utilities | 4.5% | $15.27 | 6.4% | $0.68 | 2.3% | 11 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.8% | $53.09 | 1.9% | $0.44 | 18.1% | 12 |
| BCE-T | Bell Canada | 5.4% | $67.94 | 3.1% | $3.68 | 5.1% | 13 |
| BIP-N | Brookfield Infrastructure Partners | 3.4% | $62.72 | 2.7% | $2.16 | 5.9% | 14 |
| CCL-B-T | CCL Industries | 1.6% | $58.82 | -13.2% | $0.96 | 14.3% | 20 |
| CNR-T | Canadian National Railway | 1.8% | $164.52 | 6.2% | $2.93 | 19.1% | 26 |
| CTC-A-T | Canadian Tire | 2.7% | $189.44 | 3.4% | $5.20 | 10.6% | 11 |
| CU-T | Canadian Utilities Limited | 4.8% | $37.11 | 1.4% | $1.78 | 1.0% | 50 |
| DOL-T | Dollarama Inc. | 0.3% | $69.02 | 8.8% | $0.20 | 1.7% | 11 |
| EMA-T | Emera | 4.4% | $59.88 | -4.3% | $2.65 | 2.9% | 15 |
| ENB-T | Enbridge Inc. | 6.1% | $56.46 | 14.0% | $3.44 | 3.0% | 26 |
| ENGH-T | Enghouse Systems Limited | 1.8% | $40.02 | -12.7% | $0.72 | 16.3% | 15 |
| FNV-N | Franco Nevada | 0.8% | $154.60 | 13.6% | $1.28 | 10.3% | 14 |
| FTS-T | Fortis | 3.6% | $60.07 | -0.7% | $2.14 | 4.4% | 48 |
| IFC-T | Intact Financial | 2.1% | $186.49 | 13.9% | $4.00 | 17.6% | 17 |
| L-T | Loblaws | 1.3% | $111.16 | 8.2% | $1.46 | 6.6% | 10 |
| MGA-N | Magna | 2.9% | $62.89 | -22.9% | $1.80 | 4.7% | 12 |
| MRU-T | Metro | 1.6% | $69.42 | 3.6% | $1.10 | 10.0% | 27 |
| RY-T | Royal Bank of Canada | 3.4% | $142.13 | 3.9% | $4.80 | 11.1% | 11 |
| SJ-T | Stella-Jones Inc. | 2.0% | $39.30 | -3.4% | $0.80 | 11.1% | 17 |
| STN-T | Stantec Inc. | 1.1% | $64.17 | -8.6% | $0.71 | 6.8% | 10 |
| TD-T | TD Bank | 3.5% | $101.79 | 2.5% | $3.56 | 12.7% | 11 |
| TFII-T | TFI International | 1.0% | $135.15 | -3.6% | $1.36 | 17.4% | 11 |
| TIH-T | Toromont Industries | 1.3% | $118.44 | 4.2% | $1.52 | 15.2% | 32 |
| TRP-T | TC Energy Corp. | 5.2% | $68.81 | 15.2% | $3.57 | 4.4% | 21 |
| T-T | Telus | 4.1% | $32.29 | 8.5% | $1.31 | 4.4% | 18 |
| WCN-N | Waste Connections | 0.7% | $138.10 | 3.0% | $0.92 | 8.9% | 12 |
| Averages | 2.7% | 2.0% | 9.1% | 18 |
